Financial Executives Call Sarbanes-Oxley Compliance a 'Good Investment,' According to Oversight Survey
Individual accountability, fraud safeguards, error reduction & board empowerment all seen
as benefits of Sarbanes-Oxley Compliance
ATLANTA - Dec. 14, 2004 - Oversight Systems Inc. today announced the results of the 2004 Oversight
Systems Financial Executive Report On Sarbanes-Oxley Compliance, a nationwide survey of 222 financial
executives. The report shows most financial executives are torn on the cost vs. benefits of Sarbanes-Oxley
compliance.
The findings reveal that a majority of financial executives (57 percent) say Sarbanes-Oxley (SOX) compliance
was a good investment for stockholders. However, when asked about the impact of SOX compliance on
shareholder value the view was mixed. Although a clear majority (81 percent) think Congress needs to
revisit SOX legislation, most would still include the sections that require the CEO and CFO to sign off on
financial reports (Section 302); increased documentation and monitoring of internal controls (Section 404);
and the timely disclosure of material changes (Section 409). More information about the survey, including
downloadable findings, can be found at www.oversightsystems.com/newspress/survey.pdf
Of those surveyed, 79 percent report having stronger internal controls as a result of SOX compliance.
Nearly three quarters (74 percent) say their companies realized a benefit from SOX compliance. When asked
to identify the benefits from SOX, the survey reports that:
46 percent say SOX compliance ensures the accountability of individuals involved in
financial reports and operations
33 percent say SOX compliance decreases the risk of financial fraud
31 percent say they have reduced errors in their financial operations
27 percent say SOX improvements in the accuracy of financial reports
25 percent say SOX compliance empowers the board audit committee by providing it with
deeper information, and
20 percent say SOX strengthens investors' view of the company.
However, the bottom-line benefits of SOX compliance seem fuzzier when the group was asked what impact SOX
compliance had on shareholder value. Many, 37 percent, of those surveyed say SOX increased shareholder value
because investors know they operate as an ethical business, and 25 percent report that SOX boosts
shareholder value by building overall confidence in the market. However, 33 percent say SOX compliance
created a cost burden that suppresses stock prices, and 14 percent feel that SOX decreased their ability to
pay out dividends because compliance expenses are a significant drain on earnings (respondents could select
all that applied).
"We've seen a negative reaction to Sarbanes-Oxley because it's easy to quantify the cost and extremely
difficult to quantify the benefits," said Dr. Todd DeZoort, Accounting Advisory Board Fellow at The
University of Alabama and an advisor to Oversight Systems. "It's great to see perceived benefits like
improved accuracy in financial reports, but how do you place a dollar value on that? The reality is that
the costs of financial reporting fraud or restating earnings can be in the billions."
As part of the survey, respondents were also asked to define their feelings toward SOX legislation. Of the
group, 52 percent say Congress had good intentions when it passed SOX, but the costs of compliance were not
fully considered. Thirty-eight percent say SOX was Congress's over-reaction to the unethical behavior of a
few executives, and 28 percent say the market requires regulations like SOX to boost investor confidence in
the market's integrity. Only 13 percent say the benefits of SOX outweigh the costs of complying while 25
percent say the costs of complying with SOX outweigh the benefits (respondents could select all that applied).
"Financial executives can justifiably complain about the costs and difficulty of complying with
Sarbanes-Oxley, but even this group tells you they have stronger internal controls because of the law,"
said Dr. Dana Hermanson, a professor of accounting and co-founder of the Corporate Governance Center at
Kennesaw State University. Hermanson is also an advisor to Oversight Systems. "The medicine was tough to
take, but we see direct benefits to the company and shareholders. This is powerful validation of the
legislation."
For executives concerned about ongoing SOX compliance costs, Hermanson recommends that companies evaluate
technology solutions that automate some of the manual work of internal auditors or SOX consultants.
"Continuous monitoring can reduce ongoing SOX compliance costs in two ways. First, it only makes sense to
leverage technology for a job that would otherwise require exhaustive time from employees or consultants.
Second, you're able to identify and correct control deficiencies as they happen when only four or five
transactions may be affected. The same problem might cause 400 to 500 exceptions if you only test your
controls at the end of the quarter."
Nearly a quarter of those surveyed (24 percent) say they plan to implement a technology solution to
continuously monitor key controls and transactions to maintain SOX 404 compliance. Oversight Systems, the
sponsor of this survey, earlier this year was the first to introduce a transaction integrity monitoring
system to analyze financial systems for controls violations, errors, misuse and fraud.
"This report confirms the important role technology will play in helping companies better align the costs
and benefits of Sarbanes-Oxley compliance," said Patrick Taylor, CEO of Oversight Systems. "Much of the SOX
burden can be relieved through the strategic use of technology that automates the work of a room full of
internal auditors to provide integrity, accuracy and confidence to financial reporting."
Other interesting data points show that 45 percent of financial executives say that as individual investors
they do not feel SOX disclosures and compliance requirements allow them to make better investment decisions
or feel more confident in investments. Forty-four percent say that SOX has increased allow them to make
better investment decisions, and 11 percent of financial executives said as individual investors they do
not purchase stock in public companies. Thirty-one percent say that more than 50 percent of their financial
department professionals hold financial certifications (such as CMA, CFM, CIA, CPA, etc.) from an
organization with enforceable ethical codes. When asked how many full-time employees are dedicated to SOX
compliance, 18 percent said more than 15, and 37 percent report that they spend more time with their CEO as
a result of SOX compliance.
About the 2004 Oversight
Systems Financial Executive Report On Sarbanes-Oxley
Compliance
Through a combination of an invitation-only online survey and survey intercepts, 222 corporate financial
leaders from across the U.S. participated in this study. Titles of those surveyed included CFO, controller,
treasurer, vice president and director. Of the sample, 25 percent were in companies with more than $5
billion in annual revenues, 23 percent with revenues from $1 billion to $5 billion, 22 percent between $251
million and $999 million, and 30 percent with revenues of $250 million or less.
EDITOR'S NOTE:
Camera-ready charts and graphs of the findings from the 2004 Oversight Systems Financial Executive Report
On Sarbanes-Oxley Compliance are available by contacting Donna Askew
by phone at 770.984.4650
or by email at
donna.askew@oversightsystems.com.
About Oversight Systems, Inc.
Oversight takes continuous monitoring to the next level by combining an audit data warehouse, advanced analytics and workflow into a single, integrated, application. By inspecting each step of individual transactions across systems, Oversight identifies errors, control violations and fraud to drive higher levels of performance and compliance. Oversight's platform automates the entire life cycle finding problems in business processes, fixing those problems and proving the problems were resolved. Oversight is the solution of choice for those CFO's, CIO's and CISO's serious about compliance and enhancing their financial performance. For more information, visit www.oversightsystems.com.
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